A Short-Term Note Payable with No Stated Rate of Interest

question 27

Multiple Choice

A short-term note payable with no stated rate of interest should be

• A) recorded at maturity value.
• B) recorded at the face amount.
• C) discounted to its present value.
• D) reported separately from other short-term notes payable.

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Definitions:

Real Risk-free Rate

The return on an investment with no risk of financial loss, adjusted for inflation.

Inflation Premium

The part of the nominal interest rate that represents compensation to the lender for the loss of purchasing power due to inflation.

Maturity Risk Premium

The additional return that investors demand for holding a bond until its maturity due to the potential for a change in the value over time.

Par Value

The face value of a bond or the stock value stated in the corporate charter, which is the minimum at which shares can be issued.